FX.co ★ Oil prices stumble as tensions ease

Brent Crude on Friday was projected to slide to $90 per barrel. However, it recouped intraday losses amid the escalation of tensions in eastern Ukraine. Brent Crude managed to appreciate above $93 after the new wave of escalation of the Russia-Ukraine conflict and the high probability of Western sanctions against Russia.

Today, Brent Crude and WTI dropped significantly due to reducing tensions over Ukraine. At the time of writing this article, Brent Crude futures for April cost $91.32 per barrel. At the end of trading on Friday, these futures were trading at $93.54.

WTI futures for March was worth $90.03 per barrel. As of last week, they were trading at $91.07 per barrel.

Apparently, the oil market has been growing for some time only amid geopolitical headwinds. In case of Russia's invasion of Ukraine, it will entail a military conflict with devastating consequences. The US government and the block have almost developed a package of sanctions against Russia if the conflict between the two Eastern European countries worsens. The war and sanctions against the largest oil exporter are sure to adversely affect the oil supply.

Therefore, any reports, even remotely connected to the Russia-Ukraine conflict, may facilitate oil growth by from $3 to $5. For instance, over the past 2.5 months, oil prices have has increased by about $20 only thanks to mutual accusations between the United States and Russia.

Apart from that, other fundamental factors have now little impact on the oil market. Traders literally pay zero attention to other news. Thus, the noticeable weakness of the market on Friday and the significant progress on talks in Vienna on reviving Tehran's 2015 nuclear deal were simply ignored by the market. Baker Hughes reported a further increase in active drilling rigs in the US, indicating a rise in oil production. However, this news did not influence the oil quotes at the end of last trading week.

Demand for oil has dropped on Monday as Sergey Lavrov and Antony Blinken have agreed to hold a meeting on January 24. In addition, a summit between Biden and Putin will take place. They will discuss security and strategic stability in Europe. Analysts believe that it may help resolve the geopolitical crisis and significantly limit the rally in oil prices. Brent Crude may return to $88-92 per barrel at the end of this week as tensions are likely to subdue.

Currently, investors are mainly focused on eastern Europe. Yet, it is also crucial to pay attention to Iran. The US and Iran may finally be converging on a commitment to a new nuclear deal. If negotiations are successful, the US will ease sanctions on Iranian oil exports. So, bringing Iran back into the oil market will add 1.5 million barrels of crude per day to the global supply.

Negotiations with Iran and the Russia-Ukraine conflict are two entirely different risks. The first one may lead to the bear market due to an increase in supply. The second one will trigger a bullish wave as US sanctions will reduce Russia's oil supply to the global market.